Brexit has been overshadowed by COVID – 19 over the past six months, but recently, it has made its presence felt in a significant way.
The UK Internal Market Bill, and the possible affect that this could have on the Northern Ireland Protocol, never mind the legal, trade and reputational damage that the consequences could have on the UK, could not have been anticipated on 31st January 2020, better known as ‘Brexit Day’, when the UK officially left the EU. An already complex Brexit has increased in complexity and what about the collateral damage, the thousands of SMEs on both sides of the Irish sea who have historically relied on interdependent trade?
The EU-UK trade negotiations are at a precarious point, with some serious issues to be resolved around fisheries, state aid rules on subsidising businesses and governance regarding dispute resolution. Companies are hoping for the best but planning for the worst.
There are fears that many companies have left preparation for a hard border too late. This will lead to additional costs, delays, and casualties in terms of companies not being able to cope with the new procedures required to conduct their business. Prior to Brexit, there were approximately 1.7 million customs declarations completed annually. It is estimated that this will increase to 20 million per annum after Brexit. The transition period was supposed to be two years, now it is 11 months, and all this is happening in the middle of a pandemic.
There is no denying the deep historical trade interdependence between Ireland and the UK, however the reality is that while this relationship is important, its significance is declining.
Ireland’s markets have diversified over the past two decades, Irish exports to the UK per the CSO in 2002, stood at almost 24%, that figure in 2018 had more than halved to 11%. The US in the same period went from 16% to over 28% and our EU partners’ purchases of Irish goods have remained around 40%. The Chinese have become a rapidly growing market for Irish goods, currently around 5%.
Ireland is the UK’s fifth largest trading partner, with about 23% of Irish imports coming from the UK showing a growth of 2% in 2017. When compared to 40% of Irish imports coming from the EU and growing consistently, year on year growth was 10% in 2017. While the UK is still a major trading partner, the trends are clearly showing that Irish businesses are increasing trading connections with EU partners.
Irish business has demonstrated its ability to deepen its integration into the Eurozone area. Belgium is the largest single EU trading partner, with medical and pharmaceuticals increasing this growth. Germany and the Netherlands are growing also. Ireland needs to continue this path of EU integration by developing new markets, developing new products and adapting to the tastes and trends of our EU neighbors. Business relationships through trusted intermediaries, established connections and developed trade networks must be used to establish more business opportunities for Irish companies within the EU and further afield in other global markets such as the USA and the Middle East.
Another key issue is logistics. Approximately 85% of Irish freight going to the EU goes via containers through UK ports. This represents around 475,000 containers per year. The traditional UK ‘land bridge’ was a relatively fast and cost-effective way to access mainland Europe. With this now in jeopardy, work is ongoing to establish stronger direct EU connections from Dublin to Rotterdam and Zeebrugge and from Rosslare to Fishguard and other EU ports. This has an obvious knock on effect to increase costs, travel times as well as weather delays and increased paperwork.
The food and beverage sectors reliance on the UK market is profound, almost 80% of Ireland’s milk and nearly 50% of its beef is exported to the UK market. Agri-food businesses will feel the effects of a ‘no deal’ Brexit the most. Ireland is a net exporter of food and according to EIU, is the most food secure nation in the world.
The Irish government was quick to help companies to prepare for Brexit after the UK referendum in 2016. Many companies have taken steps to prepare themselves and take effective actions to build resilience within their companies to anticipate a no deal Brexit. Support has been provided in terms of grants to employ additional staff to deal with the additional administration, and training courses have been provided to SMEs to assist with the additional bureaucracy. Significant focus and assistance have been provided to review current business activities, review products, review supply chain, review markets and look at new opportunities beyond the traditional UK trade relationship.
With the food and beverage sector representing 30% of exports to the UK market, this sector, as outlined, is the most vulnerable in the short term. However, having already experienced a significant exchange rate shock in 2016 after the Brexit referendum, this sector suffered notably due to the movement in Sterling. An inherent resilience developed, which saw it largely adapt to market conditions and get back on its feet. Through utilising market intelligence and evolving trends, the food & beverage industry can also reinvent itself by adding value to traditional products to meet the changing tastes and evolving trends within various markets.
With a focus on new behaviours, which have in some ways been accelerated because of COVID – 19, Irish companies can identify opportunities by innovating their products and targeting specific markets. There are a number of Irish companies that have been successful at this; such as Kerry Foods, Smiley Monroe, Combi Lift and Mash Direct, who have all become global players by making their products suit a diverse global market.
The reality with Brexit is that its effects will be significant. Ireland’s trading partners have become more diversified and with further integration into the EU and other global markets, this will help offset the negative effects in the medium to long term.
We hope for the best and prepare for the worst.
OCO Global helps SME with their export growth strategies. Through identifying new markets, helping to develop export strategies helping companies to assess, enter and grow successfully within a new market.
Through intelligence and data led research alongside a global network of experienced economic development professionals, OCO Global is here to help you with your internationalisation journey.
For further details contact Kilian Cawley, OCO Global’s Director for Ireland firstname.lastname@example.org